Key facts Luxembourg taxation

A modern legal and regulatory framework and a wide network of double-taxation treaties that help to optimize financing and asset-holding structures make Luxembourg one of the most attractive financial centres in the world. It is also an important gateway to all European countries due to its central location and politically stable environment.

Luxembourg is a part of the OECD “white list” and is very highly ranked as a reliable and transparent jurisdiction. Currently, Luxembourg holding companies are used by high net worth individuals and families, international groups, private equity firms and investments funds.

SOPARFI is an unregulated company vehicle which has no restrictions on its field of activity and is commonly used as a holding company.

Legal forms of SOPARFI:

Public Limited Liability Company (SA):

  • Minimum share capital is €30,000, 25% must be paid-in
  • At least one shareholder required, nominee shareholders allowed
  • At least 3 directors, unless the company has one sole shareholder, in which case it can have one director
  • Local Registered Office address is required
  • Submission of annual financial statements is required

Private Limited Liability Company (SARL):

  • Minimum share capital is €12,000, 100% must be paid-in
  • At least one shareholder required, Shareholder information is public, Nominee shareholders allowed
  • At least one director required, directors information is public
  • Local Registered Office address is required
  • Submission of annual financial statements is required

Taxation of SOPARFIs:

  • Aggregate combined tax rate of ±28% depending on the municipality of location
  • An 85:15 debt-equity ratio for a shareholding activity, within this limit, interests paid or accrued on debt are tax deductible and interest payments do not suffer any withholding tax (unless EU Savings Directive applies)
  • Net Wealth Tax (NWT) is 0.5% up to a NWT base of €500 million, assessed on its net asset value (unitary value) as at January 1st of each year
  • Certain assets are exempt from NWT, notably qualifying participations, providing that relevant conditions are met
  • From 2017, the minimum NWT is €4,815, applicable to all SOPARFIs whose financial assets (participations, loans to affiliates, securities, cash) exceed 90% of their gross assets and €350,000
  • Dividends are tax exempt subject to the following criteria:
    • The SOPARFI must own a minimum of 10% of the issued share capital of the underlying subsidiary (or an investment of at least €1.2 million);
    • The subsidiary, whether or not non-resident, must be subject to a similar tax regime;
    • Ownership of the interest in the subsidiary must have been held for a period of 12 months or the SOPARFI must have committed to hold the shares in the subsidiary for a 12-month period from the date the dividend has been received;
  • Dividends paid to corporate shareholders established in an EU, a DTT, or an EEA country should not be withheld at source if the beneficiary of such dividends is subject to the above mentioned conditions. In other cases, a 15% withholding tax should be imposed on distributions.
  • Liquidation proceeds from a subsidiary are tax exempt under certain conditions. Liquidation proceeds paid by a SOPARFI to its shareholder are tax exempt.
  • Interest received is fully taxable at the corporate tax rate. Interest paid abroad is tax exempt subject to EU Interest and Royalty directive.
  • To qualify for capital gain exemption, the SOPARFI investment in the subsidiary must be 10% (or €6 million) and seller must have held the corresponding shares for a period of 12 months.
  • A total of 80% of royalty and other net income (e.g., capital gains) derived from intellectual property rights (copyrights on software, patents, trademarks, designs, models and even internet domain names) is tax exempt.
  • The balance (20%) is taxable at the corporate rate, giving an effective tax rate of approximately 6% depending on the municipality of location. Royalties paid abroad are tax exempt subject to EU Interest and Royalty directive.
  • VAT rate of 17% applies to the transfer and exploitation of intellectual property rights by a SOPARFI.

Private Wealth Management Company (SPF):

SPF is aimed at private investors and individuals. It is fully tax exempt on income received from shares, bonds, notes, mutual funds, deposit accounts and any financial instrument. An SPF is strictly limited to the acquisition, holding, management and disposal of financial assets and can passively invest in any type of security. It cannot undertake commercial trading activities or be involved in the management of any other company and cannot hold real estate, intellectual property or grant interest-bearing loans.

Legal forms of SPF:

SARL: minimum share capital of €12,000, a minimum of one associate and one manager

SA: minimum share capital of €30,000, 25% must be paid in, minimum one shareholder and one director, as well as a statutory auditor

SCA: minimum share capital of €30,000, 25% must be paid in, minimum two shareholders, a general partner and a limited partner, and one manager, as well as three statutory auditors

COOPSA: a co-operative company that has adopted the form of a public limited liability company allowing variable capital, requiring a minimum of one shareholder and one director

Taxation of an SPF:

  • Exempt from corporate income tax, municipal business tax and net wealth tax
  • A subscription tax of 0.25% is applicable on the paid-in share capital, including share premium with a minimum of €100 and maximum of €125,000
  • a year Subscription tax also applies to that part of the debt (if any) that exceeds an equity-to-debt ratio of 1 to 8
  • Not entitled to benefit from Luxembourg’s double tax treaties or the EU Directives
  • Any dividend and interest payments on financial assets received by an SPF might be subject to withholding tax, if any, in the State of source in accordance with the domestic tax rules of that State
  • No withholding tax on the distribution of profits from an SPF to its shareholders and on liquidation proceed
  • Withholding tax levied at source on the interest paid on the advances and debt of the SPF to individuals at a rate of 10% for Luxembourg residents, 35% for EU residents and 0% in all other cases